The transformative scale webinar hosted by Stanford Social Innovation Review on April 29 came to a close before BRAC’s Susan Davis, Year Up’s Gerald Chertavian, and I could answer all the participants’ questions. So Abe Grindle (my co-author on the recent SSIR transformative scale article) and I have picked several broadly applicable ones to answer below. What’s your take? We’re eager to hear how others think about these questions.
How do we achieve impact at a scale that meets today's enormous needs? Explore Bridgespan research, insights from leaders, and more on the Transformative Scale Resource Center.
In general, it's true. As we all know, the total amount of capital available in the for-profit markets in exponentially greater than that available in the nonprofit sector.
In addition, however, for-profit enterprises are built for scale in a way we don't see in the nonprofit sector. In part, this is a consequence of the "nonprofit starvation cycle" that many funders unleash when they set caps on overhead and focus relentlessly on programs, with little concern or funds for building robust organizational systems and infrastructure. By comparison, the concept of restricting overhead is an inconceivable way to support scale in the for-profit area. For-profits think about how to invest to build the strong organization that they need in order to achieve scale.
As an example, years ago, I wrote a case study about SCORE, a successful tutoring company that the Washington Post Company decided to invest $50 million in to scale up. The first thing SCORE did with the money was build a training operation to prepare large numbers of effective coaches for the tutoring centers. In the for-profit sector, that was a natural thing to do. But it’s hard to image a nonprofit getting such a large grant and then having the flexibility to invest a big chunk of the money in training.
Let me refer you to an upcoming blog in our Transformative Scale series on the SSIR website. Harvard Business School Lecturer Michael Chu makes a convincing case for using “commercial platforms” to achieve transformative scale. (Also see the recent Monitor Inclusive Markets Report that highlights a variety of market-based scaling examples in the global development sphere.) In a variety of fields, for-profit models will play an integral role in producing outcomes that really matter. For-profits, however, are not the answer to every social problem.
This is a very important question, and one that’s getting a lot of attention. For example, Keystone, a decade-old nonprofit based in London, strives to bring constituents' voices systematically into social organization’s planning, measurement, and reporting.
One of the best ways is to focus on the potential for scaling impact at much lower cost using networks like the Y as a platform. It is generally true that funders have systematically underappreciated and underinvested in scaling through partner networks. There’s a bias towards investing in small, new things versus using existing networks and organizations to massively scale. This may be a case where the nonprofits are ahead of the funders, and hopefully the funders will catch up.
At the same time, some tough decisions face nonprofits in their quest for scaling impact. There may be instances in which a nonprofit could significantly grow its revenue and size if it positioned itself as the exclusive provider of a highly effective new service. But that might come at the expense of pursuing the best path to maximize impact for the world.
Happily, there are some notable exceptions worth highlighting of both a) organizations overcoming the “invented here” trap, and b) funders avoiding the starvation cycle.
Susan Davis describes one such example in her recent SSIR blog about BRAC’s Targeting the Ultra Poor program. Instead of exclusively scaling up the program once it showed positive results, BRAC gave away its ideas and implementation know-how to the sector to foster a broader movement and more quickly scale the program’s impact, with the Consultative Group to Assist the Poor and the Ford Foundation serving as important conveners, supporters, and scalers. Charles MacCormack, former CEO of both World Learning and Save the Children, will describe another such happy exception in his upcoming SSIR blog, recounting how the Bill & Melinda Gates Foundation supported Save the Children to make the necessary but "less sexy" field-building investments to help dramatically reduce newborn mortality in developing countries.
It's a question many are grappling with. People wish for a simple answer, but there isn’t one. The answer depends on the mission of the organization, and what your overall intended impact is. We see more organizations that have concluded that the energy and effort involved in opening a new site or moving into a new region has diminishing returns. Moreover, those efforts may actually come at the expense of exploring adjacent pathways that might dramatically scale the impact of the organization.
Stig Leschly, CEO of Boston-based Match Education, describes in a recent blog how his organization is pursuing transformative scale by producing and sharing path-breaking outcomes—not opening more charter schools. And Rebecca Onie, CEO of Health Leads, writes in an upcoming SSIR blog about how her organization has chosen to pursue massive scale by partnering with others health providers, not growing the organization.
That said, there are many examples of high performing nonprofit organizations having a profound effect on their fields by simply creating a proof point of what is possible and what it takes. We see this dynamic, for example, in the case of high-performing charter schools in many different markets across the country. As more funding becomes oriented to results, these pockets of excellence may spread more organically.
In general, the answer is yes. It's basically about answering the question, what is the real kernel that drives your impact? What is the "minimum critical specification," the simplest possible version of your program or approach? Unfortunately, we don't have enough investment in innovation toward simplification. But it's simplification that affects both the ability of others to implement effectively and to do so at the lowest possible cost.
If you want to achieve real impact at a transformative scale, you've got to have strong evidence that an intervention "works." Rigorous evaluation and evidence gives you more confidence in making big bets. But it's not as if we've nailed anything once and for all.
We need to fund ongoing measurement and innovation to keep learning and improving as we scale impact to new places, new contexts, new problems, and as the world continues to change around us. A for-profit would have an ongoing innovation budget. Some nonprofits try to do that, but the starvation cycle leads to systematic underinvestment in such work. Our Bridgespan colleague Paul Carttar recent blogged about the tension some see between evidence and innovation—not a view he shares.
This is brilliant work - as we used to say in my engineering days, defining the problem properly goes a long way to seeing the answer.
I'll point out a difference between the non-profit and for-profit sectors when they go to government for help.
The non-profit sector asks for money; it is starved for money (or so they think);
The for-profit sector asks for changes in the laws and regulations and incentives that affect how capital flows from sources to uses (i.e., PURPA ordering utilities to buy non-utility power, Net Metering that allows us to generate electricity on our side of the meter and offset purchases from the utility, and a 30% investment tax credit to attract financing by pulling forward the time required to return the investment, all resulted in the booming market for solar energy today in the US and around the world).
As a learned opinion, the non-profit sector does not even THINK about going to government for new laws and regulations that would/could unlock new sources of funding/investment in their programs. Just some first thoughts:
What about making the charitable donation a tax credit instead of a deduction? Then, it would make charitable donations as attractive to people in the 15% bracket as the 39% bracket. And make it "refundable" so that people who pay no taxes can participate.
What about allowing 501(c)(3) organizations to accept "equity investments" that would be like preferred stock, with a fixed dividend and return of capital? This would support the emerging "social entrepreneur" sector of mission-driven revenue businesses that deliver social benefit.
What about creating a "bond market" for the nonprofit sector, and have bond ratings and the whole thing. There are many non-profits that have strong balance sheets and could take advantage of this. Maybe have any losses become tax deductible.
Perhaps you could explore this difference in the two sectors in your project, and see where it takes you, and consider the above ideas (and many others) about structural change to create a new basis for scale-up.
Happy to discuss further,